General Equilibrium Foundations of Finance

General Equilibrium Foundations of Finance
Author: Thorsten Hens
Publisher: Springer Science & Business Media
Total Pages: 313
Release: 2013-03-09
Genre: Business & Economics
ISBN: 1475753179
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The purpose of this book is to give a sound economic foundation of finance. Finance is a coherent branch of applied economics that is designed to understand financial markets in order to give advice for practical financial decisions. This book argues that for a sound economic foundation of finance the famous general equilibrium model which in its modern form emphasizes the incompleteness of financial markets is well suited. The aim of the book is to demonstrate that financial markets can be meaningfully embedded into a more general system of markets including, for example, commodity markets. The interaction of these markets can be described via the well known notion of a competitive equilibrium. We argue that for a sound foundation this competitive equilibrium should be unique. In a first step we demonstrate that this essential goal cannot of be achieved based only on the rationality principle, i. e. on the assumption utility maximization of some utility function subject to the budget constraint. In particular we show that this important lack of structure is disturbing as well for the case of mean-variance utility functions which are the basis of the Capital Asset Pricing Model, one of the cornerstones of finance. The final goal of our book is to give reasonable restrictions on the agents' utility functions which lead to a well determined financial markets model.

Why is There Money?

Why is There Money?
Author: Ross M. Starr
Publisher: Edward Elgar Publishing
Total Pages: 177
Release: 2012-01-01
Genre: Business & Economics
ISBN: 0857938061
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'This book makes compelling reading for anyone interested in exploring the foundations of monetary theory from a rigorous general equilibrium perspective.' – Gabriele Camera, Purdue University, US 'Introducing the Arrow-Debreu-Starr model of monetary general equilibrium, Professor Starr provides the best defense ever made for the relevance of the Walrasian model to the pure theory of money. While most monetary theorists ventured to the overlapping generations model and then to the search model, only to create recently a hybrid search-Walrasian model, Starr presents the culmination of a patient, career-long effort to integrate money into the basic Walrasian model, with realistic taxation critically helping the government's money to dominate.' – Dror Goldberg, Bar Ilan University, Israel The microeconomic foundation of the theory of money has long represented a puzzle to economic theory. Why is there Money? derives the foundations of monetary theory from advanced price theory in a mathematically precise family of trading post models. It has long been recognized that the fundamental theoretical analysis of a market economy is embodied in the Arrow-Debreu-Walras mathematical general equilibrium model, with one great deficiency: the analysis cannot accommodate money and financial institutions. In this groundbreaking book, Ross M. Starr addresses this problem directly, by expanding the Arrow-Debreu model to include a multiplicity of trading opportunities, with the resultant endogenous derivation of money as the carrier of value among them. This fundamental breakthrough is achieved while maintaining the Walrasian general equilibrium price-theoretic structure, augmented primarily by the introduction of separate bid and ask prices reflecting transaction costs. The result is foundations of monetary theory consistent with and derived from modern price theory. This fascinating book will provide a stimulating and thought-provoking read for academics and postgraduate students focusing on economics, macroeconomics, macroeconomic policy and finance, money and banking. Central bankers will also find much to interest them within this book.

Foundations Of The Theory Of General Equilibrium (Second Edition)

Foundations Of The Theory Of General Equilibrium (Second Edition)
Author: Yves Balasko
Publisher: World Scientific
Total Pages: 281
Release: 2016-05-11
Genre: Business & Economics
ISBN: 9814651729
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The economic theory of general equilibrium underpins the most important models used in economic theory in general and in its more specialized areas such as macroeconomics, international trade, environmental economics, growth theory, and developmental economics. In Foundations of the Theory of General Equilibrium, leading academic scholar, Yves Balasko offers a good introduction to the economic theory of general equilibrium and makes use of various mathematical tools as intuitive and easy as possible. The second half of the book addresses properties of the general equilibrium model that are still at the frontier of current research. These properties deal with the characterization of economies with a unique equilibrium and, more generally, with the relationships between the number of equilibria and the fundamentals of an economy.

Microfoundations of Financial Economics

Microfoundations of Financial Economics
Author: Yvan Lengwiler
Publisher: Princeton University Press
Total Pages: 304
Release: 2006-05-07
Genre: Business & Economics
ISBN: 9780691126319
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This textbook takes the reader from the level of microeconomics principles through to modern asset pricing theory. Yvan Lengwiler elegantly links together issues that have in the past been the territory of general economic theorists on the one hand, and financial economists on the other. In a sequence of carefully explained steps, the reader learns how the first welfare theorem is used in asset pricing theory. The book then moves on to explore Radner economies and von Neumann-Morgenstern decision theory, and this section culminates in Wilson's mutuality principle and the consumption-based CAPM. This is then put into a dynamic setting, and term structure models are introduced. The empirical shortcomings of the standard asset pricing models are extensively discussed, as is research from the last twenty years aimed at bringing theory in line with reality. The reader is brought up to date on the latest areas of concern, such as habit formation, the consequences of heterogeneity, demographic effects, changing tax regimes, market frictions, and the implications of prospect theory for asset pricing. Aimed at masters or Ph.D. students specializing in financial economics, the book can also be used as a supplementary text for students of macroeconomics at this advanced level and will be of interest to finance professionals with a background in economics and mathematics. It includes problems (with solutions), and an accompanying website provides supporting material for lecturers.

General Equilibrium Foundation of Partial Equilibrium Analysis

General Equilibrium Foundation of Partial Equilibrium Analysis
Author: Takashi Hayashi
Publisher: Springer
Total Pages: 193
Release: 2017-07-27
Genre: Business & Economics
ISBN: 3319566962
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This book addresses the gaps in undergraduate teaching of partial equilibrium analysis, providing a general equilibrium viewpoint to illustrate the assumptions underlying partial equilibrium welfare analysis. It remains unexplained, at least at the level of general economics teaching, in what sense partial equilibrium analysis is indeed a part of general equilibrium analysis. Partial equilibrium welfare analysis isolates a market for a single commodity from the rest of the economy, presuming that other things remain equal, and measures gains and losses by means of consumer surplus. This is a money metric that is supposed to be summable across individuals, recommending policy that maximizes the social surplus. But what justifies such apparently uni-dimensional practise? Within a general equilibrium framework, the assumption of no income effect is presented as the key condition, and substantive general equilibrium situations in which the condition emerges are presented. The analysis is extended to the case of uncertainty, in which the practice adopts aggregate expected consumer surplus, and scrutinizes when such practice is justified. Finally, the book illustrates partial equilibrium as an institutional artifact, meaning that institutional constraint induces individuals to behave as if they are in partial equilibrium. This volume forms an important contribution to the literature by researching why this disparity persists and the implications for economics education.